Construction is the latest sector to show signs of life in response to record low interest rates and a post-election confidence bounce.

The Australian Industry Group/Housing Industry Association Performance of Construction Index rose by 3.9 points to a more than three-year high of 47.6 in September.

While that suggests the construction industry continued to shrink overall - a reading of 50 or higher points to expansion in the sector - the index shows apartment building grew for the first time since May 2010, and house building posted its first increase in seven months.

Activity in commercial and engineering construction improved, although both remained in decline.

The index also showed employment fell in the month, suggesting hiring intentions among construction firms remained weak.

AI Group attributes the lift in home building to property investors jumping into the market.

Chief economist Julie Toth says it is another sign that low interest rates are lifting the mood among households.

"It has taken quite a while to flow through because there were other headwinds at work there, but certainly it's starting to have an impact on consumer and household behaviour," Ms Toth said.

"So we're seeing that in the housing construction numbers and a little bit of a lift in retail, and certainly combined with the federal election we would expect to see optimism improve."

But she cautions that conditions are mixed around the country.

"New South Wales and Queensland are picking up - that is off a fairly low base - and they have got a reasonable way to go to recover the kind of construction numbers that are more typical of those markets," she said.

"There was a big housing boom in Victoria two years ago and we're still seeing numbers come down off that."

Ms Toth says the three main factors driving the residential building bounce are the record low official cash rate of 2.5 per cent, the lower Australian dollar and certainty brought by the end of the federal election campaign.

"We saw the same pattern this month with the performance of manufacturing industry, which actually clicked just above 50 points in September, and in services we also saw that index move closer to stabilisation," she said.

"It's too soon to tell whether that apparently election-linked rebound in business confidence will be sustained," Mr Eslake said.

"If it is, it could certainly lead to a very welcome upturn in business investment outside of the mining sector."

The news should give the Reserve Bank of Australia (RBA) hope that its rate cuts are lifting construction, and not just home prices.

But Mr Eslake says the recovery in housing demand has been disproportionately driven by investors this time, and that will concern the RBA because new property construction generates the most jobs and has flow-on benefits to retailers.

"Investors, to a much greater extent than owner occupiers, tend to buy established properties ... it doesn't do nearly as much for the broader economy as an upturn in new dwelling construction," he said

Mr Eslake expects the Reserve Bank to watch for signs that real activity is starting to match the rise in confidence as it weighs its next move on interest rates.